Oslo — Norway’s state-run development fund, Norfund, is finding the fattest returns in Africa are in the financial industry. The $2bn fund, which is, more and more concentrating its investments in sub-Saharan Africa, placed more than half its new capital last year in financial institutions. That focus helped salvage returns last year.
At the end of 2016, the fund had invested 16.8-billion krone ($2bn) in 124 companies, with renewable energy infrastructure investments the largest component. Financial institutions yielded 7.3% last year, while the fund saw an annual return of 2.9%.
"The financial sector has been the most profitable and has remained the best, even through difficult periods," Kjell Roland, CEO at Norfund, said in an interview last week.
The fund is becoming a growing power as annual contributions from the government are set to increase by 50% over the next four years. The capital and the returns are being ploughed into the least developed countries in an effort to promote economic growth. By contrast, Norway’s much larger sovereign wealth fund, now at more than $900bn, largely invests in developed markets.
Last year it formed Arise with the Netherlands’ FMO and Rabobank to invest in the African financial industry. Its first acquisition was a 27.7% stake in CAL Bank in Ghana. It hopes to grow Arise to more than $1bn over the next five years.
Norfund is limiting its geographical reach to get more bang for its buck and increase local influence. It invests in joint ventures only, and has teamed up with Norwegian solar producer Scatec Solar in Mozambique and also set up a micro-finance alliance with the biggest banks and insurance companies in Norway.
"There aren’t many places where you are able to pick up 5% to 7% returns over a long period of time," Roland said. "This is because the sector is well organised, pays a reasonable return on equity, and it’s diversified."